Blockchain technology can be used to clear and settle securities trades, but more work is required to assess its potential benefits for the financial system overall, concludes a report published Monday by the Bank of Canada, Payments Canada, TMX Group Ltd., Accenture and R3.
The report details the results of a research project involving the central bank, Payments Canada, and TMX, to explore the feasibility of a clearing and settlement system for securities that utilizes distributed ledger technology ( DLT, a.k.a. blockchain). Previous phases of the initiative, known as Project Jasper, examined using blockchain to clear and settle high-value interbank payments.
Now, after testing a blockchain-based network prototype to examine the interactions between the systems, they have concluded that blockchain can be used for a payment and securities settlement system. That conclusion follows a test, which found that the platform was able to was able to process transactions in a way that addresses “the privacy and scalability requirements of the Canadian system.”
“We are pleased with the Phase III outcomes and the results achieved by bringing members of Canada’s financial market ecosystem, including TMX, financial institutions and the Bank of Canada,” says Andrew McCormack, CIO at Payments Canada, in a statement. “Our results demonstrate the need to continue to broaden the scope of Project Jasper and actively explore what opportunities, and challenges, DLT could offer in the integration of financial markets and for the Canadian economy.”
The organizations note that further research is needed to test the idea of expanding a blockchain-based system to include multiple asset classes, different types of trades and participants. Indeed, the report says, “… while DLT still shows promise in terms of its ability to deliver efficiency improvements, a significant expansion of the scope of coverage of the ledger to include additional assets and the full trade and post-trade life cycle may be required to realize these benefits.”
“DLT is a promising technology that has the potential to reduce costs for participants and open new opportunities. Phase III of Project Jasper gave us the opportunity to test the technology further, and work remains to be done to determine how it can be set up to maximize the benefits for the whole financial system,” says Scott Hendry, senior special director, financial technology, Bank of Canada.